Looks Ahead to A Bright Future

DEBT RESEARCH

OUTLOOK 2015

Country INDONESIA Sovereign Rating LT Foreign S & P Moody’s Fitch

Looks Ahead to A Bright Future BB+ Baa3 BBB-

Market size in Dec 2014 Goverment Bond IDR 1209.96 tn Corporate Bond IDR 224.99 tn

Country INDONESIA

Country Rating S & P

(LTLC)

BB+

Moody’s

(LTLC)

Baa3

Fitch

(LTLC)

BBB-

Analysts Yudistira Slamet +62-21-29555777 ext. 3400 [email protected] Amir A. Dalimunthe +62-21-29555777 ext. 3405 [email protected] Rifki Rizal +62-21-29555777 ext. 3404 [email protected] Ayesha Ardelia +62-21-29555777 ext. 3406 [email protected] Melissa Hartono +62-21-29555777 ext. 3402 [email protected] Eka Nuraini +62-21-29555777 ext. 3407 [email protected] www.danareksa.com Bloomberg Ticker: DFMJ

Several external factors that will shape Indonesia’s domestic bond market in 2015 are QE by the European Central Bank, the Fed Funds rate in the US, and the expectation that oil prices will remain relatively low. The fact that the need for bond issuances will not significantly increase compared to last year and the government’s front loading strategy at government bond auctions may potentially reduce the supply of government bonds in 2H15, thus driving bond yields further down. Meanwhile, inflation is expected to be subdued at around 5.02% at the end of 2015. This will give room to Bank Indonesia to cut its benchmark interest rate (the BI rate) to 7.5% by the end of 2015. On the global front, however, the Fed Funds rate is predicted to increase in 2016. The 10-year yield curve is predicted to reach 7.7% at the end of the first semester of 2015. After that, it is expected to decline to 7.33% by the end of 2015.

OUTLOOK 2015

Indonesia Bonds Market 2014 Penurunan Yield Didominasi Demand Investor Asing Selama 1Q14, yield obligasi Pemerintah berada dalam tren penurunan yang cukup signifikan. Hal ini dikarenakan minat investor global terhadap aset yang memiliki tingkat risiko yang lebih tinggi meningkat sejak awal tahun 2014. Setelah mengalami penurunan, yield obligasi benchmark Pemerintah berada dalam tren meningkat dengan stabil selama kuartal II hingga akhir kuartal III.

Decline in Yields Due to Demand from Foreign Investors In 1Q14, the yield on government bonds showed a significant downward trend. This owed to several factors. First, global investor appetite for riskier assets increased at the beginning of 2014. From 2Q14 until the end of 3Q14, the government benchmark bond yield tended to increase again but at a stable rate.

Exhibit 1. Indonesian Government Benchmark Bonds Yield 9.75%

9.25%

8.75%

8.25%

7.75%

FR0070 - 10yr

17-Dec

3-Dec

19-Nov

5-Nov

8-Oct

FR0071 - 15yr

22-Oct

24-Sep

10-Sep

27-Aug

30-Jul

13-Aug

16-Jul

2-Jul

18-Jun

4-Jun

7-May

21-May

9-Apr

FR0069 - 5yr

23-Apr

26-Mar

26-Feb

12-Mar

12-Feb

29-Jan

15-Jan

7.25%

FR0068 - 20yr

Source: Bloomberg

The significant increase in foreign holdings of government bonds led to the decline in government bond yields at the beginning of 4Q14. However, after the increase in the BI rate to 7.75% to anticipate higher inflation as a result of government hikes in subsidized fuel prices, government bond yields started to climb again at the end of November.

Pertumbuhan kepemilikan asing di obligasi Pemerintah yang cukup signifikan menjadi faktor utama yang menyebabkan yield obligasi menurun sejak awal 4Q14. Namun, yield obligasi Pemerintah kembali meningkat pada akhir November akibat BI meningkatkan tingkat suku bunga acuan BI Rate untuk mengantisipasi tingginya laju inflasi akibat kenaikan harga BBM bersubsidi.

Flattening of the Government Bonds Yield Curve In general, the government bonds yield curve experienced a downward shift in 1H14. Compared to its position at the end of 2013, the yield curve was down about 29bps. However, in 4Q14, the short-term yield curve increased while the long-term yield curve declined. This resulted in flattening of the yield curve.

Yield Curve Obligasi IDR Pemerintah Flattening Secara umum, yield curve obligasi Rupiah Pemerintah Indonesia mengalami downward shift pada semester pertama tahun 2014 dibandingkan dengan posisi di akhir tahun 2013, dengan penurunan yield curve sebesar 29bps. Hal berbeda terjadi pada kuartal IV, yield curve tenor pendek meningkat sementara tenor panjang mengalami penurunan. Perbedaan tren tersebut menyebabkan yield slope (spread antara yield curve 2- dan 10-tahun) semakin rendah atau yield curve mengalami flattening.

2

OUTLOOK 2015

Exhibit 2. IDR Government Bonds Yield Curve

Exhibit 3. Spread between 2- and 10- Yield Curve

9.50%

170

9.00%

150

8.50% 130

8.00%

bps

7.50% 7.00%

110 90

6.50% 70

6.00% 5.50% 5 4Q13

10

15

1Q14

20

2Q14

25 3Q14

50

30

30-Dec 14-Jan 29-Jan 13-Feb 28-Feb 15-Mar 30-Mar 14-Apr 29-Apr 14-May 29-May 13-Jun 28-Jun 13-Jul 28-Jul 12-Aug 27-Aug 11-Sep 26-Sep 11-Oct 26-Oct 10-Nov 25-Nov 10-Dec 25-Dec

0

4Q14

Source: Danareksa Estimates

Source: Danareksa Estimates

Foreign Ownership Increased Significantly The improvement in the US economy pushed the Fed to raise interest rates. In turn, this encouraged investors to invest in instruments with higher risk/higher return profiles, such as those in Indonesia. As such, foreign ownership in government and corporate bonds increased significantly in 2014. Foreign ownership of corporate bonds grew rapidly, especially in 2H14, by 43.57% from IDR14.03 trillion at the end of 2013 to IDR20.14 trillion at the end of 2014. For government bonds, foreign ownership rose from IDR323.65 trillion to IDR461.3 trillion or up 42.53% in 2014.

Kepemilikan Asing Meningkat Signifikan Membaiknya kondisi perekonomian AS berpotensi mendorong The Fed untuk meningkatkan suku bunga acuan. Kenaikan Fed Funds Rate akan menyebabkan required yield investor global mengalami peningkatan, sehingga dalam jangka panjang investor akan mencari instrumen investasi yang menawarkan potensi return & risk yang lebih agresif. Instrumen dengan yield yang menarik umumnya berasal dari negara-negara EM, termasuk Indonesia. Kepemilikan asing di obligasi korporasi tumbuh pesat, terutama pada semester kedua, yakni sebesar 43,57% dari IDR14,03 triliun di akhir 2013 menjadi IDR20,14 triliun pada akhir 2014. Sementara di obligasi Pemerintah, kepemilikan investor asing meningkat secara perlahan dari IDR323,65 triliun menjadi IDR461,3 triliun atau tumbuh sebesar 42,53% selama tahun 2014.

Exhibit 4. Foreign Ownership 40%

22

39%

21

460

38%

20

440

37%

19

8.5%

420

36%

18

35%

17

8.0%

400 380

34%

360

33%

340

32%

320

31%

13

300

30%

12

Foreign Ownership (LHS)

Foreign Ownership (%)

9.5%

Corporate Bonds

9.0%

16

7.5%

15

7.0%

14

Foreign Ownership (LHS)

Oct-14

6.0% Nov-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

6.5% Dec-13

Dec-14

Oct-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

Apr-14

Jan-14

Feb-14

IDR trillion

Dec-13

Mar-14

Government Bonds

480

IDR trillion

500

Foreign Ownership (%)

Source: Ministry of Finance, KSEI

3

OUTLOOK 2015

Less varied issuances of corporate bonds Based on rating, issuances of corporate bonds were less varied in 2014 than in 2013. In 2014, no A- or BBB+ corporate bonds were issued. Overall, the issuance of corporate bonds based on rating declined. The largest decline was seen in AA+ rated bonds which dominated issuances in 2013 but only accounted for 20.03% of issuances in 2014 or down by 9%.

Penerbitan Obligasi Korporasi Tidak Bervariasi Berdasarkan peringkat (rating), penerbitan obligasi korporasi di tahun 2014 kurang bervariasi dibandingkan dengan tahun 2013. Hanya obligasi dengan peringkat AAA yang mengalami peningkatan secara proporsi maupun nominal yang cukup signifikan dari hanya 22,39% pada 2013 menjadi 40,90% pada tahun 2014. Secara keseluruhan, penerbitan obligasi korporasi berdasarkan peringkat mengalami penurunan.

One of the factors behind lower issuances of corporate bonds in 2014 was the still relatively high yield on government bonds. Only corporate bonds with AAA ratings saw a significant increase, accounting for 40.90% of issuances in 2014, or up from only 22.39% in 2013. Due to the low issuance of corporate bonds, the maturing corporate bonds exceeded new bond issuances in 1H14 - the first time this has happened since 2009.

Salah satu faktor yang menyebabkan turunnya penerbitan obligasi korporasi adalah yield obligasi Pemerintah yang masih relatif tinggi. Rendahnya penerbitan obligasi mengakibatkan untuk pertama kalinya pada sejak tahun 2009, pada semester pertama tahun 2014 nilai obligasi korporasi yang jatuh tempo lebih besar dari nilai penerbitan obligasi baru.

Exhibit 5. Corp Bonds Issuance by Rating

AA11.17%

AA 13.42%

A 13.02%

AA 11.23%

A7.00%

A+ 3.29%

AA8.66% A 12.96%

AA+ 20.03%

A+ 3.46%

BBB+ 1.71% AA+ 29.09%

AAA 22.39%

BBB 1.11%

2013

AAA 40.90%

BBB 0.55%

2014

Source: KSEI Issuances of Multi Finance Bonds Still Increased in 2014 Bond issuances variety by sector also declined in 2014. Most notably, the issuance of bonds for the Banking and Property & Construction sectors declined to 25.36% and 7.15% of total issuances in 2014. Bond issuances in certain sectors such as transportation and mining & natural gas declined drastically in 2014.

Penerbitan Obligasi Sektor Finance Tetap Tumbuh di 2014 Penerbitan obligasi per sektor secara umum cenderung mengalami penurunan. Seperti penerbitan obligasi untuk sektor Banking dan Property & Cons yang sama-sama mengalami penurunan persentase penerbitan menjadi 25,36% dan 7,15% di tahun 2014. Beberapa sektor yang sebelumnya terlihat memiliki kontribusi terhadap penerbitan obligasi korporasi pada tahun 2013, pada tahun 2014 terlihat menurun drastis seperti pada sektor transportasi serta mining oil and natural gas.

The multifinance sector dominated corporate bond issuances in both 2013 and 2014, accounting for 38.82% and 41.62% of the total issuances in the respective years.The dominance of the multifinance sector in two consecutive years demonstrates the flexibility of these companies in adjusting their lending rates with their cost of funds. Meanwhile, other sectors which saw an increase in their share of bond issuances in 2014 compared to 2013 were the consumer goods, telecommunications, retail, and fertilizer sectors.

Proporsi penerbitan selama tahun 2013 maupun 2014, didominasi oleh sektor mutlifinance dengan persentase masing-masing sebesar 38,82% dan 41,62%. Dominasi sektor multifinance selama dua tahun berturut-turut ini menunjukkan fleksibilitas Perusahaan dalam menyesuaikan tingkat suku bunga yang tinggi dengan biaya pendanaan yang dapat ditanggung perusahaan. Sedangkan sektor lain yang pada tahun 2014 memiliki proporsi penerbitan yang lebih besar dari pada tahun 2013 juga terjadi pada consumer goods, telecommunication, retail, dan fertilizer.

4

OUTLOOK 2015

Exhibit 6. Corp Bonds Issuance by Sector Property & Construction 11.10% Infrastructure 9.41%

Banking 27.30%

Property & Construction 7.15%

Transportasi 3.59%

Telco Consumer 5.41% Goods 4.87% Infrastructure 4.33% Retail 4.33%

Banking 25.36% Mining Oil & Natural Gas 2.56% Consumer Goods 2.39%

Others 3.25%

Others 4.83%

Financial Company 38.82%

Fertilizer 3.68%

Financial Company 41.62%

2013

2014

Source: KSEI Hikes in subsidized fuel prices and inflation Domestically, the hikes in subsidized fuel prices in November 2014 had a large impact on government bond yields. This is because hikes in subsidized fuel prices can result in higher inflation. In response, Bank Indonesia hiked its benchmark SBI rate to 7.75% on 18 November 2014. Meanwhile on the currency front, the weaker rupiah can also lead to outflows of foreign funds from Indonesia’s bonds market.

Kenaikan harga BBM subsidi dan inflasi Di dalam negeri, kenaikan harga BBM bersubsidi pada bulan November 2014 sangat berpengaruh terhadap yield obligasi Pemerintah. Kenaikan harga BBM bersubsidi dapat memicu tingginya inflasi dan pelemahan nilai tukar Rupiah. Bank Indonesia pada akhirnya meningkatkan suku bunga menjadi 7,75% pada 18 November 2014. Selain itu, nilai tukar Rupiah yang melemah dapat menyebabkan terjadinya foreign outflow dari pasar obligasi Indonesia.

Exhibit 7. Macroeconomic Effect on Bonds Market 9.5%

Inflasi (LHS)

Yield Index

9.25%

BI Rate

9.00%

8.5%

8.75% 7.5%

8.50%

6.5%

8.25% 8.00%

5.5%

7.75% 4.5%

7.50%

27-Dec

12-Dec

27-Nov

28-Oct

12-Nov

13-Oct

28-Sep

13-Sep

29-Aug

14-Aug

30-Jul

15-Jul

30-Jun

15-Jun

31-May

16-May

16-Apr

01-May

01-Apr

17-Mar

15-Feb

02-Mar

31-Jan

16-Jan

7.25%

01-Jan

3.5%

Source: Bloomberg, Danareksa Estimates

5

OUTLOOK 2015

The bonds market was healthier in 2013 Exhibit 8 shows a comparison of the yield spread range in 2013 and 2014 derived from the difference between the average of the maximum yield spread and the average of the minimum yield spread in certain observation periods. The yield spread is the yield difference for each government bond series traded in the market with the theoretical yield (fair yield). From the two graphs, it can be seen that the yield spread is wider in 2014 than in 2013, implying that the bonds market was more liquid and healthier in 2013. The highest yield spread in 2014 and 2013 was on the FR27 short tenor bond, and the yield spread in both years tended to be larger for bonds with short tenors. The wider the yield spread on a bond, the more difficult the pricematching process to conduct a transaction, and vice versa.

Perdagangan obligasi tahun 2013 lebih kondusif Exhibit 8 menampilkan perbandingan yield spread range di tahun 2013 dan 2014 yang diperoleh dari selisih antara rata-rata yield spread maksimum dan rata-rata yield spread minimum pada beberapa periode observasi. Yield spread merupakan rentang perbedaan yield masing-masing seri obligasi pemerintah yang ada di pasar dengan tingkat theoretical yield (tingkat yield wajar). Dari dua grafik ini dapat dilihat bahwa yield spread di tahun 2014 lebih lebar dibandingkan tahun sebelumnya sehingga dapat dikatakan kondisi pasar obligasi pemerintah lebih liquid dan kondusif di tahun 2013. Yield spread tertinggi di tahun 2014 maupun 2013 dimiliki oleh seri obligasi bertenor pendek, yaitu FR27 dan yield spread di kedua tahun cenderung lebih besar pada obligasi bertenor pendek. Semakin lebar yield spread obligasi, maka proses price-matching untuk terjadinya traksaksi relatif lebih sulit dan begitu pula sebaliknya

Exhibit 8. Yield Spread Range Average in 2013 & 2014 0.14

2013

0.12

Percentage (%)

0.10 0.08 0.06 0.04 0.02

FR0026 FR0027 FR0030 FR0055 FR0060 FR0028 FR0066 FR0032 FR0038 FR0048 FR0036 FR0031 FR0034 FR0053 FR0061 FR0035 FR0043 FR0063 FR0046 FR0039 FR0044 FR0040 FR0037 FR0056 FR0059 FR0042 FR0047 FR0064 FR0052 FR0054 FR0058 FR0065 FR0045 FR0050 FR0057 FR0062

0.00

0.14

2014

0.12

Percentage (%)

0.10 0.08 0.06 0.04 0.02

FR0027 FR0030 FR0055 FR0060 FR0028 FR0066 FR0032 FR0038 FR0048 FR0069 FR0036 FR0031 FR0034 FR0053 FR0061 FR0035 FR0043 FR0063 FR0046 FR0039 FR0070 FR0044 FR0040 FR0037 FR0056 FR0059 FR0042 FR0047 FR0064 FR0071 FR0052 FR0054 FR0058 FR0065 FR0068 FR0045 FR0050 FR0057 FR0062 FR0067

0.00


6

OUTLOOK 2015

Exhibit 9 shows a comparison of the volume per transaction for each government bonds series in 2013 and 2014. For both years, it can be seen that there tended to be higher volume per transaction for short tenor bonds than for long tenors. All in all, volume per transaction was higher in 2014 than in 2013, implying more liquid market conditions in 2013 considering that transactions were generally smaller in size.

Exhibit 9 menunjukkan perbandingan volume per transaksi untuk tiap seri obligasi pemerintah di tahun 2013 dan 2014. Untuk kedua tahun, terlihat adanya kecenderungan volume per transaksi yang lebih tinggi pada obligasi bertenor pendek. Dengan kata lain, dibutuhkan volume transaksi yang besar untuk mencapai kesepakatan jual beli pada obligasi ini. Secara keseluruhan, volume per transaksi di tahun 2014 lebih besar dari tahun 2013, mengimplikasikan kondisi perdagangan di tahun 2013 yang relatif lebih liquid mengingat lebih kecilnya nilai yang diperlukan di tiap transaksi.

Exhibit 9. Volume/Frequency Average in 2013 & 2014 2013

50 45 40

IDR billion

35 30 25 20 15 10 5

FR0026 FR0027 FR0030 FR0055 FR0060 FR0028 FR0066 FR0032 FR0038 FR0048 FR0036 FR0031 FR0034 FR0053 FR0061 FR0035 FR0043 FR0063 FR0046 FR0039 FR0044 FR0040 FR0037 FR0056 FR0059 FR0042 FR0047 FR0064 FR0052 FR0054 FR0058 FR0065 FR0045 FR0050 FR0057 FR0062

0

2014

50 45 40

IDR billion

35 30 25 20 15 10 5

FR0027 FR0030 FR0055 FR0060 FR0028 FR0066 FR0032 FR0038 FR0048 FR0069 FR0036 FR0031 FR0034 FR0053 FR0061 FR0035 FR0043 FR0063 FR0046 FR0039 FR0070 FR0044 FR0040 FR0037 FR0056 FR0059 FR0042 FR0047 FR0064 FR0071 FR0052 FR0054 FR0058 FR0065 FR0068 FR0045 FR0050 FR0057 FR0062 FR0067

0

Source: IDX, Danareksa Estimates

7

OUTLOOK 2015

Most of the maturing Government securities will be shortterm notes A total of IDR124.25 trillion of government securities will mature in 2015. Most of the maturing securities will be shortterm notes, the SPN and SPNS series, accounting for 35.97% of the total (IDR44.69 trillion). The month with the highest amount of maturing bonds (IDR25.76 trillion) is April, in which month USD1 billion (IDR12.62 trillion) of INDON series will mature. The fixed Rate series (FR0027) will mature in June 2015 (IDR17.7 trillion).

Kontribusi terbesar jatuh tempo obligasi Pemerintah dari instrumen jangka pendek Pada tahun 2015, total outstanding obligasi Pemerintah yang akan jatuh tempo mencapai IDR124.25 triliun. Kontribusi terbesar berasal dari instrumen jangka pendek, seri SPN dan SPNS, yang berkontribusi sebesar 35.97% atau mencapai Rp44.69 triliun. Jumlah obligasi jatuh tempo terbanyak terdapat pada bulan April sebesar Rp25.76 triliun, termasuk di dalamnya INDON senilai 1 miliar dolar AS atau setara Rp12,62 triliun d alam mata uang Rupiah. Seri Fixed Rate yaitu FR0027 akan jatuh tempo pada bulan Juni 2015 sebesar Rp17.7 trillion.

Exhibit 10. Maturing Government Bonds in 2015 30,000

Fixed Rate

SPN

SPNS

Retail

Others

INDON/INDOIS

25,000

IDR billion

20,000 15,000 10,000 5,000

Month ID

Total

Fixed Rate

SPN

SPNS

Retail

Others

2015-12

2015-11

2015-10

2015-09

2015-08

2015-07

2015-06

2015-05

2015-04

2015-03

2015-02

2015-01

0

INDON/INDOIS

2015-01 875 0 0 875 0 0 2015-02 9,230 0 6,450 2,780 0 0 2015-03 8,150 0 3,600 4,550 0 0 2015-04 25,764 0 1,450 2,530 0 9,164 2015-05 1,850 0 1,850 0 0 0 2015-06 21,502 17,702 2,800 0 0 1,000 2015-07 4,800 0 4,800 0 0 0 2015-08 6,715 0 4,000 0 0 2,715 2015-09 18,246 0 2,000 0 13,614 2,632 2015-10 17,677 0 5,000 0 12,677 0 2015-11 9,436 0 2,000 0 0 7,436 2015-12 0 0 0 0 0 0

0 0 0 12,620 0 0 0 0 0 0 0 0

Total

12,620

124,245

17,702 33,950 10,735 26,291 22,947

Source: MoF, Danareksa Estimates Financial sector bonds dominated maturing corporate bonds Total maturing corporate bonds in 2015 will reach IDR36.26 trillion, dominated by Financial Sector bonds with a total amount of IDR21.18 trillion. The second largest contributor is the Banking sector with IDR9.08 trillion of maturing bonds. The Financial Sector bonds will mostly mature in the second quarter of the year, reaching IDR9.37 trillion. By comparison, most of the Banking sector bonds will mature in the fourth quarter, reaching IDR5.08 trillion.

*exchange rate = IDR12,620/USD as of 2 Jan 2015 Sektor keuangan mendominasi jatuh tempo obligasi korporasi Total obligasi yang akan jatuh tempo di tahun 2015 mencapai Rp36,26 triliun, didominasi oleh sektor Finansial non Bank yang mencapai Rp 21,18 triliun. Kontribusi terbesar kedua berasal dari sektor perbankan sebesar Rp9,08 triliun untuk total obligasi yang jatuh tempo di tahun 2015. Secara umum sektor finansial, termasuk perusahaan multifinance, memiliki obligasi dengan jatuh tempo terbesar pada kuartal kedua. Pada kuartal kedua tahun 2015, obligasi jatuh tempo dari sektor finansial mencapai Rp9,37 triliun. Sedangkan untuk sektor perbankan pada umumnya memiliki jatuh tempo terbesar pada kuartal keempat. Pada kuartal keempat tahun 2015, total obligasi perbankan yang jatuh tempo adalah Rp5,08 triliun. 8

OUTLOOK 2015

Exhibit 11. Maturing Corporate Bonds in 2015 5,000

Financial

Banking

Infrastructure

Telco

Prop & Cons

Others

4,500 4,000

IDR billion

3,500 3,000 2,500 2,000 1,500 1,000 500

Month ID

Total

Financial

Banking

36,258

21,182

9,079

Telco

Prop & Cons

0 0 0 0 368 0 0 320 0 0 0 0 805 1,005 0 0 0 0 0 0 219 0 0 0 1,392 1,325

2015-12

2015-11

2015-10

2015-09

2015-08

Infrastructure

2015-01 1,513 807 706 2015-02 3,762 3,188 575 2015-03 2,627 1,937 0 2015-04 3,967 3,212 400 2015-05 4,461 3,726 585 2015-06 3,732 2,434 803 2015-07 4,278 1,042 400 2015-08 525 0 525 2015-09 1,078 1,078 0 2015-10 1,973 0 1,973 2015-11 4,703 2,143 1,491 2015-12 3,639 1,615 1,621 Total

2015-07

2015-06

2015-05

2015-04

2015-03

2015-02

2015-01

0

Others

0 0 0 0 0 322 0 35 0 150 75 420 85 941 0 0 0 0 0 0 150 700 350 53 660 2,621

Source: IDX, Danareksa Estimates

9

OUTLOOK 2015

US dollar strengthening on the back of US economic improvements In Exhibit 10, it can be seen that the Leading Economic Index (LEI) and the Coincident Economic Index (CEI) continued to post increases. This suggests that economic conditions in the US are already improving.

Dollar AS Menguat Seiring Membaiknya Perekonomian AS

As the US economy recovered, the Fed conducted QE tapering which was completed in October 2014. Looking ahead, the Fed may have plans to raise the Fed Funds Rate. Against this backdrop, investors are encouraged to switch from safe haven instruments to higher risk/ higher return investments, like those in Indonesia. Nevertheless, raising the Fed Funds Rate will lead to a higher required yield demanded by investors to hold Indonesian bonds.

Dengan membaiknya kondisi perekonomian Amerika Serikat, The Fed melaksanakan QE tapering yang akhirnya berhenti pada bulan Oktober 2014 dan kini berencana menaikkan tingkat suku bunga acuan (Fed Funds Rate). Hal ini memotivasi investor untuk keluar dari safe haven dan berinvestasi di instrumen dengan risiko dan return yang lebih tinggi, seperti Indonesia. Namun, peningkatan Fed Funds rate akan menyebabkan required yield investor untuk memegang instrumen obligasi Indonesia diprediksi akan tinggi.

Exhibit 11 shows that as the US economy improved, the US dollar strengthened relative to other currencies in 2014. Currencies which weakened relative to the US Dollar included the euro, yen and rupiah, which depreciated by 13%, 14%, and 2%, respectively, in 2014.

Exhibit 11 memperlihatkan bahwa seiring dengan kondisi ekonomi Amerika Serikat yang membaik, dolar AS menguat terhadap mata uang negara lain pada tahun 2014. Pelemahan nilai tukar terhadap dolar AS dialami oleh mata uang Euro, Yen, dan Rupiah sepanjang tahun 2014.

Exhibit 12. Fed Funds rate vs US Inflation

Exhibit 13. USD Exchange rate

111

US CEI (LHS) Fase

US LEI

111

Resesi

Leading Economic Index (LEI) merupakan indikator ekonomi yang menunjukkan perubahan sebelum ekonomi bergerak secara keseluruhan, sedangkan Coincident Economic Index (CEI) bergerak seiring dengan kondisi perekonomian negara tersebut. Pada Exhibit 10, kedua indikator meningkat secara kontinyu yang mengindikasikan kondisi perekonomian AS sudah mulai meningkat kembali,

110 105

104

108

100 95

105

3bu

85

Oct-14

Jun-14

Aug-14

Apr-14

Oct-13

Dec-13 Feb-14

Jun-13

Aug-13

USDJPY

60

Apr-13

96 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

76

USDEUR

65

Oct-12

Fase

USDIDR

70

Dec-12 Feb-13

99

75

Jun-12

83

80

Aug-12

102

Apr-12

90

Fase

90

Feb-12

8bu

Dec-11

97

Sources: Danareksa Research Institute

Sources: Bloomberg, Danareksa Estimates

High potential gains at attractive prices Exhibit 12 shows movements in domestic government bonds price indexes for several emerging market countries (Dec 2011=100). In 2014, the price index of Indonesian domestic bonds generally increased, albeit less significantly than in the other countries. This suggests that Indonesian domestic bonds have the potential to make large gains. All in all, Indonesian domestic bonds are still considered attractive even though they are highly volatile (as seen in the middle of 2013).

Potensi Gain tinggi dengan harga atraktif Exhibit 12 menunjukkan pergerakan indeks harga obligasi local currency Pemerintah di beberapa negara emerging markets (Dec 2011=100). Sepanjang tahun 2014, indeks harga obligasi domestik Indonesia secara umum meningkat, meskipun jauh lebih rendah dibandingkan negara lain. Kondisi tersebut menunjukkan potensi gain obligasi domestik Indonesia yang besar. Obligasi domestik Indonesia tetap menarik meskipun memiliki volatilitas harga yang sangat tinggi seperti ditunjukkan pada pertengahan tahun 2013.

10

OUTLOOK 2015

Exhibit 13 shows the ratio between the price index and the exchange rate index toward the US Dollar. We can see a significant decline in the Indonesian ratio in the middle of 2013 which was due to the rupiah’s depreciation relative to the US dollar (weakening by 23.6% from 2013 until November 2014). The rupiah’s depreciation was behind the declining ratio, suggesting that Indonesian bond prices were relatively cheap in US dollar terms. In addition, there is still the potential for foreign inflows into the Indonesian bonds market as long as the ratio stands below 1.

Exhibit 13 menunjukkan rasio antara indeks harga dan indeks nilai tukar terhadap USD. Terlihat rasio Indonesia menurun signifikan di pertengahan tahun 2013, hal ini diakibatkan terdepresiasinya Rupiah sebesar 23,6% terhadap USD sejak Juni 2013 hingga akhir November 2014. Terdepresiasinya Rupiah secara signifikan menyebabkan rasio menurun, mengindikasikan harga obligasi Indonesia relatif murah bila dilihat dari denominasi USD. Selain itu, masih terdapat potensi foreign inflow menuju pasar obligasi Indonesia selama nilai rasio masih berada di bawah 1.

Exhibit 14. Price Index of Local Currency Bonds Index

Exhibit 15. Ratio Between Price and Currency

135

Indonesia

145%

Indonesia

130

Philippines

135%

Philippines

125

India

120

India

125%

Brazil

Brazil

115%

115

105%

110

95%

105

85%

100

Oct-14

Jun-14

Aug-14

Apr-14

Oct-13

Dec-13 Feb-14

Jun-13

Aug-13

Apr-13

Oct-12

Dec-12 Feb-13

Jun-12

Aug-12

65%

Apr-12

Oct-14

Jun-14

Aug-14

Apr-14

Feb-14

Oct-13

Dec-13

Jun-13

Aug-13

Apr-13

Feb-13

Oct-12

Dec-12

Jun-12

Aug-12

Apr-12

Feb-12

Dec-11

90

Feb-12

75%

December 2011 = 100

Dec-11

95



Declining US Treasury yields led to an increasing risk premium The yield spread between Indonesian government bonds denominated in US Dollars and the 10-year US Treasury (the sovereign risk premium) has been in a declining trend since the beginning of 2014. As for the currency premium, the yield spread between Government bonds denominated in US Dollars and Government bonds denominated in Rupiah, the trend has been upwards. This is evidence of the willingness of foreign investors to invest in Indonesian bonds even though they expect a higher required yield to invest in government bonds denominated in rupiah.

Meningkatnya Premi Risiko Akibat Penurunan Yield US Treasury Yield spread antara obligasi Pemerintah Indonesia berdenominasi dolar AS (INDON) dan US Treasury 10 tahun (sovereign risk premium) berada dalam tren yang menurun sejak awal tahun 2013. Sedangkan untuk currency risk premium, yaitu spread antara obligasi Pemerintah berdenominasi dolar AS dan obligasi Pemerintah berdenominasi Rupiah, berada dalam tren meningkat. Hal ini menandakan investor asing memiliki minat yang tinggi untuk berinvestasi di obligasi Indonesia tetapi meminta required yield yang lebih tinggi untuk berinvestasi di obligasi Pemerintah berdenominasi Rupiah.

11

OUTLOOK 2015

365 345 325 305 285 265

Dec-14

Oct-14

225 Nov-14

Sep-14

Jul-14

Aug-14

Jun-14

Apr-14

245 May-14

Dec-14

Nov-14

Oct-14

Sep-14

Jul-14

Aug-14

150

Jun-14

2.0%

Apr-14

170 May-14

2.5% Mar-14

190

Jan-14

3.0%

Feb-14

210

Dec-13

3.5%

Oct-13

230

Nov-13

4.0%

405

bps

250

bps

4.5%

425 385

Mar-14

270

Jan-14

INDON 10Y

Feb-14

5.0%

290

Currency Risk Premium (RHS) INDON 10Y

9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% Dec-13

310

5.5%

Sovereign Risk Premium (RHS) UST 10Y

Oct-13

6.0%

Exhibit 17. Currency Risk Premium

Nov-13

Exhibit 16. Sovereign Risk Premium

Sources: www.treasury.gov, Bloomberg, Danareksa Estimates


Increasing trend of the Indonesian USD bonds price in 2014 Exhibit 16 illustrates the price index of INDON compared to the price index of sovereign bonds from other developing countries, including the Investment Grade countries and High Yield countries. As can be seen in the Exhibit, the price of INDON slumped in the middle of 2013 but then recovered in 2014. The INDON price index tends to be lower than the price index of the sovereign bonds of other countries, implying a relatively lower price and room for potential gains. Thus, this instrument is still considered attractive for foreign investors.

Tren peningkatan harga obligasi USD selama 2014

The CDS - as a risk indicator which influences the decision making of investors – was in a downward trend in 2014. As can be seen in Exhibit 17, the CDS reached its highest level in the middle of 2013. Compared to other developing countries, the risk of investing in Indonesia can be considered moderate with a higher CDS than that of Malaysia and the Philippines but lower than Brazil’s CDS.

Pergerakan CDS sebagai salah satu indikator risiko yang mempengaruhi pengambilan keputusan investor menunjukkan tren yang menurun di tahun 2014. Seperti yang terlihat pada Exhibit 17, CDS sempat mencapai level tertinggi di pertengahan tahun 2013. Dibandingkan Negara berkembang lainnya, risiko berinvestasi di Indonesia lebih moderat dengan CDS yang lebih tinggi dari Malaysia dan Filipina tetapi lebih rendah dari Brazil.

Exhibit 18. Price Index of INDON and Other

Exhibit 19. CDS 5-year

130 125

350

Indonesia US EM Investment Grade EM High Yield

300 250

120

bps

115 110 105

200 150

100

100

Dec-11 Feb-12 Mar-12 May-12 Jun-12 Aug-12 Sep-12 Nov-12 Dec-12 Feb-13 Mar-13 May-13 Jun-13 Jul-13 Sep-13 Oct-13 Dec-13 Jan-14 Mar-14 Apr-14 Jun-14 Aug-14 Sep-14 Oct-14 Dec-14

95 90

Indonesia Philippines Malaysia Brazil


50

Dec-11 Feb-12 Mar-12 May-12 Jun-12 Aug-12 Sep-12 Nov-12 Dec-12 Feb-13 Mar-13 May-13 Jun-13 Jul-13 Sep-13 Oct-13 Dec-13 Jan-14 Mar-14 Apr-14 Jun-14 Aug-14 Sep-14 Oct-14 Dec-14

135

Exhibit 16 menampilkan indeks harga INDON dibandingkan dengan indeks harga obligasi dari Negara-negara berkembang lainnya, baik yang termasuk dalam kategori Investment Grade maupun kategori High Yield. Terlihat pada gambar bahwa harga INDON mengalami penurunan yang cukup dalam di pertengahan tahun 2013 namun kembali pulih di tahun 2014. Indeks harga INDON yang cenderung lebih rendah dari indeks harga sovereign bonds Negara lainnya menunjukkan harga yang relatif lebih murah dan adanya potensi gain sehingga masih menarik bagi investor asing.

Sources: Bloomberg, Danareksa Estimates 12

OUTLOOK 2015 The correlation between the domestic corporate bonds market and GDP growth The growth of outstanding corporate bonds in Indonesia has a strong correlation with GDP growth. In 2013-2014, the financing costs for bond issuances increased. This drove the number of issuances down. Lower funding from bond issuances means that fewer companies undertake business expansion, which, in turn, reduces the pace of growth. Based on historical data from 4Q07 to 4Q14, slower growth in corporate bonds is followed by slower GDP growth. If difficulties in finding low cost financing persist in 2015, then the growth of outstanding corporate bonds may not show a significant increase. This may potentially translate into slower GDP growth.

Pasar obligasi korporasi domestik dan korelasinya dengan pertumbuhan GDP Pertumbuhan outstanding obligasi korporasi di Indonesia memiliki korelasi kuat dengan pertumbuhan GDP. Pada tahun 2013-2014, biaya pendanaan melalui penerbitan obligasi meningkat, sehingga Perusahaan secara umum menurunkan penerbitan obligasi. Pendanaan yang berkurang menyebabkan Perusahaan lebih sedikit melakukan ekspansi, sehingga kontribusi terhadap laju pertumbuhan berkurang. Berdasarkan data historical dari 4Q07 hingga 4Q14, laju pertumbuhan obligasi korporasi yang lebih lambat juga akan diiringi oleh pertumbuhan GDP yang lebih lambat. Apabila pada tahun 2015 masih relatif sulit bagi Perusahaan untuk mendapatkan pendanaan dengan biaya yang lebih rendah, maka diprediksi pertumbuhan outstanding obligasi korporasi tidak akan meningkat secara signifikan. Pertumbuhan Perusahaan yang tidak signifikan berpotensi mendorong lambatnya pertumbuhan GDP.

Exhibit 20. Outstanding Corporate Bonds vs GDP 70%

8.0%

GDP Growth YoY (RHS) Corp Bonds Outstanding Growth (yoy)

60%

7.5%

MA(2) of Corp Bonds Outstanding Growth 7.0%

50%

6.5% 40% 6.0% 30% 5.5% 20%

5.0%

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

4Q10

3Q10

2Q10

1Q10

4Q09

3Q09

2Q09

1Q09

4Q08

3Q08

4.0%

2Q08

0%

1Q08

4.5%

4Q07

10%

Source: KSEI, BPS

Activity in the secondary bond market The bullish period from 2011 until 1Q12 was marked by declining overall bond yields and brisker trading in government bonds. The ratio of the transactions volume to the total outstanding government bonds (the Government Bonds Turnover ratio) showed an increase, indicating brisker trading activity in the secondary market.

Pergerakan historis aktivitas pasar sekunder Periode bullish sepanjang tahun 2011 sampai dengan 1Q12 ditandai dengan penurunan yield secara keseluruhan dan memiliki turnover obligasi Pemerintah yang terus meningkat. Perbandingan antara volume transaksi dan total outstanding obligasi Pemerintah (Government Bonds Turnover ratio) yang mengalami peningkatan menunjukkan aktivitas perdagangan sekunder yang tinggi.

As for corporate bonds, trading activity in the secondary market tended to stay stable in the bullish period before declining in 2Q12-1Q13 when yields were at quite low levels. The low yields helped boost issuances of corporate bonds which still offered more attractive yields than government bonds. Strong primary market issuances led to a decline in the Corporate Bonds Turnover ratio. The bearish period beginning in the middle of 2013 led to declining turnover in both government bonds and corporate bonds. The sharp increase in yields reduced the number of bond issuances and led to lower trading activity in the secondary market.

Sementara untuk obligasi korporasi, aktivitas perdagangan sekunder cenderung stabil pada periode bullish, kemudian menurun pada periode 2Q12-1Q13 dimana yield berada pada level yang cukup rendah. Yield yang rendah memicu peningkatan penerbitan obligasi korporasi yang menawarkan yield yang lebih atraktif dibandingkan obligasi Pemerintah. Penerbitan di pasar primer yang kuat menyebabkan penurunan Corporate Bonds Turnover ratio. Periode bearish yang terjadi semenjak tengah tahun 2013 menyebabkan penurunan turnover obligasi Pemerintah maupun korporasi. Peningkatan yield secara tajam menurunkan penerbitan obligasi dan aktivitas perdagangan di pasar sekunder. 13

OUTLOOK 2015

Exhibit 21. Secondary Market Activity 3.00

9.50 9.00

2.50

8.50

2.00

8.00 7.50

1.50

7.00

1.00

6.50 6.00

0.50

Bullish

Sideway

Bearish

Gov't Bonds Turn Over

Corp Bonds Turn Over

Yield Index

Oct-14

5.00

Dec-14

Jun-14

Aug-14

Apr-14

Feb-14

Dec-13

Oct-13

Jun-13

Aug-13

Apr-13

Feb-13

Oct-12

Dec-12

Jun-12

Aug-12

Apr-12

Feb-12

Oct-11

Dec-11

Aug-11

Jun-11

Apr-11

Dec-10

Feb-11

5.50

0.00

Source: IDX, KSEI

Government bonds performed well in 2014 Indonesian government bonds posted a loss of 13.18% in 2013. However, in 2014, the Indonesian government bonds price index rallied resulting in a total return (including capital gains) of 13.24% at the end of the year.

Performa obligasi Pemerintah membaik di tahun 2014 Obligasi Pemerintah Indonesia mencatatkan significant loss mencapai -13,18% selama tahun 2013. Kemudian pada tahun 2014, indeks harga obligasi Pemerintah mengalami perbaikan hingga menghasilkan total return (termasuk capital gain) sebesar 13,24% pada akhir tahun.

Exhibit 21 shows the performance of Indonesian government bonds in 2010-2014. In the bearish period of 2013, corporate bonds performed much better than government bonds. In 2014, however, the performance of government bonds improved to surpass that of corporate bonds (with a total return of 13.24% vs 10.24%). The highest total returns on corporate bonds were seen in the Banking, Finance, and Telecommunications sectors at 10.51%, 10.16% and 10.27% respectively in 2014.

Exhibit 21 menunjukkan performa pasar obligasi Pemerintah tahun 2010-2014. Pada periode bearish di tahun 2013, performa obligasi korporasi mengungguli performa obligasi Pemerintah. Obligasi pemerintah kembali pulih dan melampaui total return obligasi korporasi sebesar 10,24% di 2014. Sektor Banking, Finance, dan Telecommunication menjadi sektor dengan total return tertinggi yaitu masing-masing sebesar 10,51%; 10,16%; dan 10,27% pada tahun 2014.

Exhibit 22. Total Return and Capital Gain Performance

Exhibit 23. Indonesian Bonds Market 150

Sector

YTD Total Return 2010 2011 2012 2013 2014

10%

145

5%

140

0%

135

-5%

130

20.82 20.89 21.47 22.00 16.52 15.07 14.87 9.59 15.04 14.57 18.40 13.24 19.66 16.41 16.84 15.80

-10%

125

-15%

120

Composite Governments Corporates Finance Banking Consumer Goods Industry Telecommunication Infrastructure, Utilities & Transportation Property and Construction Corporate upper A- Corporate below A- up to BBB- SOE

-20%

115

Total Return

Price Index

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

15%


12.20 -10.14 12.95 12.52 -13.18 13.24 10.81 4.70 10.24 10.10 5.17 10.16 12.04 5.52 10.51 9.05 6.58 5.13 9.41 -1.15 10.27 10.07 6.85 9.86

-0.93 22.05 13.16 6.97 9.99 17.19 14.83 10.75 4.84 10.25 9.99 19.10 12.80 -1.67 9.98 16.14 17.72 9.95 3.16 10.33

Sources: Danareksa Estimates

14

OUTLOOK 2015

Increasing fund flows to safe havens As economic conditions have remained weak in Europe, demand for US Treasuries as a safe haven has increased significantly. Due to the declining trend in 10 year yields with the 2 year US Treasury yield staying flat, the yield curve tended to flatten in 2014. This was not in line with market expectations which anticipated interest rate increases in 2014 following expected hikes in the Fed Funds rate.

Fundflow menuju safe haven meningkat Kondisi perekonomian Eropa yang belum membaik menyebabkan demand terhadap US Treasury sebagai salah satu instrument safe haven meningkat signifikan.Tren penurunan yield curve 10-tahun yang disertai pergerakan yield curve 2-tahun US Treasury yang cenderung bergerak sideways selama tahun 2014, menyebabkan bentuk yield curve yang lebih flat jika dibandingkan dengan akhir tahun 2013. Hal tersebut berada di luar ekspektasi pasar yang memperkirakan kenaikan tingkat suku bunga pada tahun 2014 pasca kenaikan Fed Funds rate.

Exhibit 24. US Treasury 10-& 2- Years Yield

Exhibit 25. US Treasury Yield Slope

US 2Y

US10Y

3.0% 2.5%

4.5%

2.0%

3.5%

1.5%

2.5%

1.0%

1.5%

0.5%

0.5%

0.0%

-0.5%

-0.5%

Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14

5.5%


6.5%

Sources: Bloomberg

Sources: Bloomberg

Negative 2 year German Bunds Yield German Bunds, as a safe haven for euro investors, also enjoyed stronger demand. The 10-year yield showed a declining trend, indicating fund flows into this low risk instrument. The 2 year yield was also in a declining trend and it even entered negative territory at 0.11% by the end of the year. This is a 14 year record low. With these trends, the yield slope also declined and is now at a 5 year record low.

Yield curve 2 tahun Germany Bunds menyentuh negatif Hal yang sama terjadi pada obligasi safe haven untuk Euro currency yaitu German Bunds. Tren penurunan yield curve 10-tahun mengindikasikan adanya aliran dana yang masuk ke instrumen dengan tingkat risiko yang rendah. Tren penurunan juga dapat diamati dari pergerakan yield curve 2-tahun German Bunds. Yield curve 2-tahun German Bunds menyentuh negatif 0,11% di akhir tahun. Kedua tenor tersebut mencatatkan yield terendah selama 14 tahun terakhir. Dengan tren penurunan pada tenor tersebut, yield slope menunjukkan tren yang menurun dan merupakan yang terendah selama lima tahun terakhir.

15

OUTLOOK 2015

5.5%

Germany 2Y

Germany 10Y

Exhibit 27. German Bunds Yield Slope 2.75% 2.25%

3.5%

1.75%

2.5%

1.25%

1.5%

0.75%

0.5%

0.25%

-0.5%

-0.25%


4.5%


Exhibit 26. German Bunds 10-& 2- Years Yield



Market conditions for Italian, Spanish and Portuguese bonds The low Euro area yearly inflation (0.4%) as of August 2014 had caused The European Central Bank to lowered the interest rates by 10 bps in order to spur the economic growth. As of September 2014, the benchmark interest rate was lowered to 0.05% and the deposit rate was lowered to minus 0.2%.

Perkembangan pasar obligasi Italia, Spanyol, dan Portugal

Spain’s 10 year bond yield stood at 1.6% at the end of 2014, or down by 254bps from its level in 2013. The yield on Italian 10 year bonds also showed a significant decline. It dropped to 1.88%, or down 220bps from the end of 2013. Similarly in Portugal, bond yields declined by 331 bps to 2.66% as of December 30, 2014.

Yield obligasi Spanyol 10 tahun mencapai 1,6% per akhir tahun 2014, atau turun signifikan sebesar 254bps dibandingkan tahun 2013. Penurunan signifikan juga dialami yield obligasi 10 tahun Italia mencapai 1,88% , atau turun sebesar 220bps sejak akhir tahun 2013. Hal serupa dialami Portugal yang mengalami penurunan yield obligasi sebesar 331bps mencapai 2,66% per tanggal 30 Desember 2014.

If the economic condition remained weak, the default risk will increased. The total amount of bonds maturing in those three countries and Greece in 2015 will reach USD 900 billion. Italy has the largest amount of maturing bonds at USD 400 billion in 2015. Portugal, meanwhile, will exchange its bonds which will mature in 2015 and 2016 with bonds maturing in 2021 and 2023. Hence in 2015, Portugal’s total maturing bonds will reach USD 27.9 billion. Spain and Greece have USD 247 billion and USD 36.2 billion of maturing bonds in 2015.

Apabila kondisi perekonomian belum menunjukkan perbaikan, maka akan terjadi peningkatan risiko gagal bayar. Pada tahun 2015, Italia akan memiliki jatuh tempo terbesar yaitu USD 400 miliar. Sedangkan Portugal, pada bulan November 2014 melakukan bonds exchange antara bonds yang jatuh tempo pada 2015 dan 2016 dengan bonds yang jatuh tempo pada tahun 2021 dan 2023. Sehingga pada tahun 2015, Portugal mencatatkan jatuh tempo sebesar USD 27,9 miliar. Sementara itu Spanyol dan Yunani masing-masing mencatatkan jatuh tempo sebesar USD 247 miliar dan USD 36,2 miliar pada tahun 2015.

Inflasi tahunan di kawasan Eropa yang cenderung rendah mencapai 0,4% pada bulan Agustus 2014 menyebabkan European Central Bank menurunkan tingkat suku bunga sebesar 10bps dalam rangka mendorong pertumbuhan ekonomi. Per September 2014, benchmark interest rates diturunkan menjadi 0,05% dan deposit rate menjadi negatif 0,2%.

16

OUTLOOK 2015

Exhibit 28. Eurozone Maturity Profile

1,400

Germany

Portugal

Spain

Greece

Italy

USD billion

1,200

8.0%

18%

7.0%

16%

6.0%

14% 12%

5.0%

1,000

4.0%

800

3.0%

600 400 200

10% 8% 6%

2.0%

4%

1.0%

2%

0.0%

0%

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14

1,600

Exhibit 29. Eurozone 10-Years Yield

0 2015

2016

> 2016


Italy YC10Y

Spain YC10Y

Portugal YC10Y (RHS)


Exhibit 30. Eurozone Maturity Profile Year

Germany Portugal

Italy

Spain

Greece

2015 2016 > 2016 Total Number of Series

189,280 27,912 400,082 247,325 36,221 199,336 19,043 218,927 126,283 7,562 944,625 185,936 1,495,150 730,186 314,877 1,333,241 232,891 2,114,159 1,103,794 358,660 171 89 184 208 95


17

OUTLOOK 2015

Indonesia Bonds Market Outlook 2015 Financial sector bonds issuance will dominate In view of the business profile of financial companies, especially multifinance companies, we believe that issuances of coporate bonds in 2015 will still be dominated by companies from this sector. Since the price of subsidized fuel has been significantly reduced since December, demand for automotive products should remain strong over the medium term. Growth in automotive sales has underpinned the growth in the multifinance business. To maintain the growth momentum, we estimate that the funding source from corporate bond issuances will continue to increase. As such, we expect that issuances of bonds by multifinance companies will reach IDR23.03 trillion in 2015.

Penerbitan obligasi sektor keuangan mendominasi Mengingat profil bisnis dari perusahaan-perusahaan keuangan kami mengestimasi dominasi penerbitan obligasi korporasi dari sektor multifinance. Pengurangan harga BBM bersubsidi semenjak Desember 2014, akan mempertahankan demand yang kuat terhadap kendaraan bermotor dalam jangka menengah. Pertumbuhan dari pembelian kendaraan bermotor yang sebagian besar menggunakan jasa perusahaan pembiayaan, akan mendukung pertumbuhan bisnis perusahaan multifinance. Untuk mendukung momentum pertumbuhan tersebut, maka estimasi pendanaan terutama yang berasal dari penerbitan obligasi korporasi akan meningkat. Dengan demikian, maka kami memperkirakan penerbitan obligasi multifinance pada tahun 2015 mencapai Rp23,03 triliun.

As for the Banking sector, we expect infrastructure development to spur the growth in working capital loans. In 2015, the banking sector is expected to issue IDR17.92 trillion of bonds, or 53% higher than in the previous year. In total, corporate bond issuances are expected to reach IDR51.19 trillion in 2015, up an estimated 11% over the previous year. For government bonds, gross issuances are expected to reach IDR430.66 trillion in 2015 with net issuances of IDR277.05 trillion.

Pemerintah diprediksi akan mendorong sektor pembangunan infrastruktur yang akan memacu pertumbuhan sektor riil. Hal ini akan memacu pertumbuhan kredit modal kerja untuk kebutuhan pendanaan yang berasal dari sektor perbankan. Berdasarkan hal tersebut estimasi penerbitan obligasi perbankan akan tumbuh 53% mencapai Rp17,92 triliun di tahun 2015. Secara keseluruhan, penerbitan obligasi korporasi di tahun 2015 akan mencapai Rp51,19 triliun, atau tumbuh 11% dari tahun sebelumnya. Sementara itu untuk obligasi Pemerintah, target penerbitan kotor adalah sebesar Rp430,66 triliun dan penerbitan bersih sebesar Rp277,05 triliun.

Exhibit 31. Estimated Issuance of Government and Corporate Bonds (IDR Billion) Corp Bonds

2012

2013

2014

2015F

Financial Company Maturing Issuance Banking Maturing Issuance Others Maturing Issuance

9,277 11,470 19,539 20,943 25,507 22,735 19,224 23,037 4,637 8,724 10,968 9,079 19,975 15,988 11,712 17,917 12,944 6,211 12,426 5,998 23,804 19,841 15,250 10,239

Total

Maturing Issuance

26,858 26,405 42,933 36,019 69,286 58,564 46,186 51,193

Issuance Growth

Govt Bonds

53%

-15% -21%

11%

2009 2010 2011 2012 2013 2014 2015F

Mature & Buyback 50,972 60,505 83,550 47,412 93,475 163,151 153,612 Gross Issuance 144,558 161,903 211,179 268,549 327,716 428,129 430,662 Nett Issuance 144,305 148,892 204,600 151,913 268,548 264,978 277,050 Outstanding 727,586 815,974 943,020 1,038,418 1,085,173 1,232,272 1,509,322 Source: IDX, KSEI, MoF

18

OUTLOOK 2015

Entering the bullish period The 10-year yield curve is predicted to reach 7.7% at the end of the first semester of 2015. After that, it is expected to decline to 7.33% by the end of 2015. The expectation of declining bond yields in 1H15 is further underpinned by several global factors including QE by the European Central Bank, the Fed Funds rate in the US, and the expectation that oil prices will remain relatively low. The fact that the need for bond issuances will not significantly increase compared to last year and the government’s front loading strategy at government bond auctions may potentially reduce the supply of government bonds in 2H15, thus driving bond yields further down. Meanwhile, inflation is expected to be subdued at around 5.02% at the end of 2015. This will give room to Bank Indonesia to cut its benchmark interest rate (the BI rate) to 7.5% by the end of 2015. On the global front, however, the Fed Funds rate is predicted to increase in 2016.

Memasuki periode bullish Yield curve 10-tahun diprediksi mencapai angka 7,7% pada akhir semester pertama 2015 dan akan kembali mengalami penurunan hingga menyentuh 7,33% di akhir tahun 2015. Pergerakan yield yang cenderung turun secara perlahan selama 1H15 lebih didominasi oleh faktor kondisi ekonomi global seperti issue QE Eropa, Fed Funds Rate di US, dan ekspektasi harga minyak dunia yang relatif masih akan rendah. Kebutuhan penerbitan yang tidak meningkat signifikan dibandingkan dengan tahun 2014 serta kemungkinan strategi front loading yang dilakukan Pemerintah berpotensi menurunkan tingkat supply obligasi Pemerintah di 2H15 sehingga mendorong yield kembali turun. Selain itu, inflasi diperkirakan akan berada di level 5,02% di akhir tahun 2015. Dengan demikian, Bank Indonesia akan menurunkan tingkat suku bunga acuannya (BI Rate) menjadi 7,5% menjelang akhir tahun 2015. Sedangkan dari sentimen global, Fed Funds Rate diprediksi baru akan mengalami peningkatan di tahun 2016 mendatang.

Exhibit 32. SUN 10-years Yield Curve 10.0 9.0 8.0 7.0 6.0

4.0

Dec-15

Sep-15

5.0

Jun-15

Mar-15

Dec-14

Sep-14

Forecast

Jun-14

Mar-14

Dec-13

Sep-13

Jun-13

Mar-13

Dec-12

Sep-12

Jun-12

Mar-12

Dec-11

Actual

Bond Coupon (%) Tenor YTM as of 1H15 EoP 2015 31 Dec 14 YTM Total Capital Interest YTM Total Capital Interest (%) (%) Return Gain Return (%) Return Gain Return (%) (%) (%) (%) (%) (%) FR0069 7.88 4.23 7.69 7.13 3.97 1.74 2.24 6.73 8.72 2.63 6.10 FR0070 8.38 9.14 7.83 7.42 4.02 2.40 1.62 7.03 10.10 4.50 5.61 FR0071 9.00 14.14 8.19 7.69 5.58 3.89 1.69 7.30 12.67 6.83 5.84 FR0068 8.38 19.31 8.30 7.93 6.56 3.49 3.07 7.56 14.40 7.18 7.22 Blended Benchmark Series 8.02 7.58 5.07 2.95 2.12 7.19 11.65 5.48 6.17 Source: Danareksa Estimates

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OUTLOOK 2015

Based on the scenario above, the government bonds yield curve will shift downwards until the end of 2015. The 2-year yield curve is predicted to decline to 6.69% in 2015 or down 100bps compared to the end of 2014. Meanwhile, the 10-year yield curve is expected to fall to 7.33%, or down 125bps. Hence, the yield slope (the difference between the 10 and 2 year yield curves) will stand at an estimated 61bps at the end of 2015, not much changed from its level in 2014.

Berdasarkan skenario di atas, yield curve obligasi Pemerintah diperkirakan akan bergerak shift downwards hingga akhir tahun 2015. Yield curve 2 tahun pada akhir tahun 2015 diprediksi mencapai 6,69% atau turun 100bps dibandingkan akhir tahun 2014. Sedangkan ekspektasi yield curve 10 tahun di akhir 2015 mencapai 7,33% atau turun 125bps. Dengan demikian, slope (selisih antara yield curve 10- dan 2-tahun) pada tahun 2015 mencapai 61bps, bergerak sideways dari tahun 2014. Dengan kata lain, bentuk kurvatur di akhir 2015 diperkirakan tidak berbeda signifikan jika dibandingkan dengan akhir 2014.

Exhibit 33. Government Bonds Yield Curve Government Bond Yield Curve YC 1Y YC 2Y YC 3Y

YC 5Y YC 6Y

YC 7Y

YC 10Y YC 15Y

YC 20Y YC 30Y

31-Dec-11 4.56 5.00 5.19 5.49 5.65 5.82 6.29 6.83 7.12 7.38 31-Dec-12 4.13 4.43 4.57 4.79 4.92 5.06 5.47 5.98 6.28 6.55 31-Dec-13 7.30 7.66 7.82 8.11 8.26 8.39 8.70 9.00 9.14 9.25 31-Dec-14 7.09 7.68 7.97 8.24 8.32 8.39 8.58 8.84 9.01 9.18 1H15F 6.51 7.05 7.26 7.42 7.47 7.52 7.70 7.95 8.11 8.26 EoP 2015F 6.15 6.69 6.90 7.06 7.11 7.16 7.33 7.59 7.75 7.90

9.50 9.00 8.50 8.00 7.50 7.00 6.50

31-Dec-14

1H15F

EoP 2015F

6.00 0

5

10

15

20

25

30


20

OUTLOOK 2015

DEBT RESEARCH TEAM Telp No. Fax No.

+62-21-29555777 +62-21-3501709

Head of Debt Research Yudistira Slamet [email protected] ext. 3400 Credit Analyst Market Analyst Amir A. Dalimunthe Rifki Rizal [email protected] ext. 3405 [email protected] ext. 3404 Ayesha Ardelia [email protected] ext. 3406 Production & Database Management Melissa Hartono Eka Nuraini [email protected] ext. 3402 [email protected] ext. 3407 DEBT CAPITAL MARKET TEAM Telp No. Fax No. Head of Debt Capital Market Budi Susanto [email protected]

+62-21-29555777 +62-21-3501724/25

ext. 3200

Debt Sales & Brokerage Debt Trading & Investment Rina Rimawati D Romi Mulyadi [email protected] ext. 3223 [email protected] Agung Suprihanto Indra Figrachanda [email protected] ext. 3212 [email protected] Putrika Mayadipta [email protected] ext. 3215 Ariningtyas W. Agustina [email protected] ext. 3224 Product & Retail Hernita Dwi Ariesandhy Setyo H. Purnomo [email protected] ext. 3216 [email protected] Tia Aprianti [email protected] ext. 3225 Breisga Nawangsidi [email protected] ext. 3217

ext. 3213 ext. 3214

ext. 3226

21

OUTLOOK 2015

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22

Looks Ahead to A Bright Future

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